Warily, Europe’s Steel Makers Are Firing Up Their Furnaces Again

DUNKIRK, France — Steel mills like ArcelorMittal’s 1,200-acre complex here on the French coast are forbidding places, full of incandescent metal and groaning machinery. But longtime industry executives like Henri-Pierre Orsoni, who runs the company’s operations in northern France, relish being around these dusty behemoths.

“It is a passion,” he said on a recent day, walking past rivulets of molten slag streaming from a blast furnace. But Mr. Orsoni, who has spent his 33-year career at ArcelorMittal and its predecessors, acknowledged that the last few years, when Europe’s demand for steel all but evaporated, had been painful.

Now, though, he and others in the industry are beginning to see signs of a revival in the hard-hit sector, which remains a good proxy for the broader European economy. After sporadic shutdowns during the recession to cope with a lack of orders, all three blast furnaces at Dunkirk are running at full capacity.

Mr. Orsoni expects the Dunkirk plant this year to produce about 6.6 million metric tons of raw steel slabs, about 5 percent more than last year. His customers, particularly those in the auto industry, which buys about half of his steel, are increasing their orders as the pace picks up at their factories.

But the tough times have made him wary. “We are feeling only that it is starting to be better,” he said. “But everybody is cautious.”

If the steel business in Europe does perk up, profits may soar for ArcelorMittal, based in Luxembourg. It is the world’s largest steel maker and produces about 25 percent of European steel. Its main rivals, which include ThyssenKrupp of Germany and Voestalpine of Austria, would also benefit.

The big question is whether demand will be sufficient to keep all of Europe’s mills busy. Businesses have been buying about 30 percent less steel than during the peak in 2007, and steel industry employment has shrunk by about 16 percent since the downturn began, to around 350,000 jobs.

Like Mr. Orsoni, others in the industry predict that as the European economy stabilizes, demand for steel, which is widely used in building and manufacturing, will gradually increase. But they are not forecasting a boom.

The crisis in Ukraine, where ArcelorMittal has a large plant, is a worrisome distraction. But because Ukraine and Russia are only small markets for Western European steel plants, unless the situation turns significantly worse, the bigger uncertainties for the industry are whether Western European companies will step up investments, whether consumers will increase their buying of cars, refrigerators and washing machines, and whether construction will rebound.

Demand from manufacturers who make things like appliances and cars is on the rise. But construction, which accounts for about 35 percent of European steel consumption, remains slow, said Peter Fish, chairman of the industry consulting firm Meps in Sheffield, England.

Countries like Spain and Italy, whose earlier economic booms depended on construction, “are still in trouble,” Mr. Fish said. Governments focused on reducing debt are not spending much on large projects.

Jean-Christophe Vigouroux, chairman of Bacacier, a French maker and distributor of steel buildings and supplies that will buy 70,000 tons of steel from ArcelorMittal this year, says he thinks the French market for his products will be flat this year but “much more interesting in 2015.”

Steel makers have been trying to negotiate modest price increases of about 4 percent, to about 470 euros, or $650, a metric ton, but are having trouble making them stick, according to Jeff Largey, an analyst at Macquarie Securities in London. “Confidence in the market is still shaky,” Mr. Largey said.

Some of ArcelorMittal’s rivals say that still more cuts in steel production are required in current conditions. Mr. Eder of Voestalpine, Europe’s third-largest steel maker, recently estimated that the European steel industry had permanently shuttered 10 million metric tons of crude steel capacity since the financial crisis but needed to remove an additional 25 million tons of capacity to prevent downward price pressure.

“We should do this as quickly as possible,” said Mr. Eder, who is also president of the industry trade group Eurofer.

But closing plants in Europe is far from easy, as ArcelorMittal well knows. Part of the reason Dunkirk is going flat out is that the company has already shut down other operations, including blast furnaces elsewhere in France and in Belgium. The partial closing of operations in Florange in northeast France, with the loss of about 600 jobs, drew a threat of nationalization in 2012 from the government of President François Hollande in 2012.

Determined to stanch persistent losses in Europe, the company has consolidated its production of raw steel, the heart of the business, to a handful of locations. Those include Ghent in Belgium, Fos-sur-Mer in southern France and near the beaches and harbor of Dunkirk, where about 300,000 Allied troops were evacuated in 1940 ahead of advancing German forces.

Like the other favored sites, Dunkirk has certain basic qualifications. The blast furnaces, towerlike structures where iron ore is converted to molten iron, are big and efficient. Large ships bearing the vast quantities of iron ore and coal required for steel making can dock at the Dunkirk site, lowering costs.

Smaller inland blast furnaces, like those at Florange and Liège in Belgium, are doomed.

Dunkirk is the ArcelorMittal site still left in this part of Europe where iron from blast furnaces is blended with a leavening of molten scrap and alloys and then poured into long, glowing slabs of steel.

Other plants in the region, including the one at Florange, which still employs more than 2,000 people, then press the slabs into long, flat sheets and coat or otherwise finish them for use as car parts, washing machine bodies, roofing or steel cans.

ArcelorMittal has signaled its intent to continue investing in Dunkirk. The company says it will reline one of the blast furnaces next year, a necessary but expensive — €90 million — project.

Already the plant, which was built in the 1960s but has been periodically updated, stands out from many other steel facilities. It has bright, airy control rooms with video screens that allow technicians to monitor the caldrons of hot metal without getting too close.

Union representatives say that while the investments in Dunkirk are reassuring, they are unhappy that the company is whittling away staff and employing young and temporary workers as the plant’s older workers retire.

Serge Vanderlynden, a 39-year employee and representative of the Force Ouvrière, a union, recalls that in the 1970s there were about 10,000 employees at the site, compared with about 3,100 now.

“We can feel the gloominess,” he said. “People are worried.”

Mr. Orsoni, who runs both Dunkirk and Florange, says that he is bringing in about 200 replacements for the 300 people retiring this year. It is not hard to hire locally, where unemployment is about 14 percent.

“I feel very lucky,” said Antoine Desormon, a 29-year-old factory floor worker who was recently hired after working at the plant for a contractor. “It is hard to find a job.”

Lakshmi Mittal, the company’s chief executive, has had little choice but to streamline European operations, which he acquired through the hostile takeover of Arcelor, an amalgam of European steel companies, in 2006.

The long economic slump in Europe, where ArcelorMittal produces more than 40 percent of its steel, has been a drag on the company. The main European business, for which Mr. Orsoni works, lost $933 million on revenues of $27 billion last year. The company’s comparable business in the Americas made a profit of $852 million.

Mr. Mittal says he has cut about $1 billion in costs from the European operation, moves that he says should make it profitable. He forecasts that demand in Europe will rise about 2 percent, compared with projected growth of about 4 percent in the United States.

ArcelorMittal bases its European projections in part on the forecasts of customers like Toyota in Europe.

“We will buy more compared to last year,” said Galina Staykov, Toyota’s senior manager for purchasing in Europe. “Everyone, almost, will buy more steel because the market itself is growing.”

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